How do we determine the useful life of the property? Who determines?

It is the taxpayer because he is the one

engaged in business or trade or profession. He has the knowledge or idea how long the particular asset used in
business would last. Hindi man yan CIR.

But take note of this small provision:

(3) Agreement as to Useful Life on Which Depreciation Rate is Based. - Where under rules and regulations
prescribed by the Secretary of Finance upon recommendation of the Commissioner, the taxpayer and the
Commissioner have entered into an agreement in writing specifically dealing with the useful life and rate of
depreciation of any property, the rate so agreed upon shall be binding on both the taxpayer and the
national Government in the absence of facts and circumstances not taken into consideration during the
adoption of such agreement. The responsibility of establishing the existence of such facts and circumstances
shall rest with the party initiating the modification. Any change in the agreed rate and useful life of the
depreciable property as specified in the agreement shall not be effective for taxable years prior to the taxable
year in which notice in writing by certified mail or registered mail is served by the party initiating such change
to the other party to the agreement:

Provided, however, that where the taxpayer has adopted such useful life and depreciation rate for any
depreciable and claimed the depreciation expenses as deduction from his gross income, without any written
objection on the part of the Commissioner or his duly authorized representatives, the aforesaid useful life and
depreciation rate so adopted by the taxpayer for the aforesaid depreciable asset shall be considered binding for
purposes of this Subsection.
Eventually, there are certain properties that upon recommendation of the Commissioner and pursuant to the
Rules and Regulations prescribed by the Secretary of Finance, the taxpayer and the Commissioner enters into an
agreement in writing specifically dealing with the useful life and rate of depreciation of any property. The rate so
agreed upon shall be binding on both the taxpayer and the national Government in the absence of facts and
circumstances not taken into consideration during the adoption of such agreement.

MUTUAL CONSENT NEEDED

If there is an agreement between the government and the taxpayer, both cannot change unilaterally but there
must have a mutual consent.

If the government wants to adjust the value of the property, then the BIR must notify the taxpayer. In the same
way, if the taxpayer feels to adjust the value of the property and the useful life, then the taxpayer must also
request the BIR for the adjustments.

Section 34(F)(6) pertains to the nonresident aliens engaged in Trade or Business or Resident Foreign Corporations.
(6) Depreciation Deductible by Nonresident Aliens Engaged in Trade or Business or Resident Foreign
Corporations. - In the case of a nonresident alien individual engaged in trade or business or resident foreign
corporation, a reasonable allowance for the deterioration of Property arising out of its use or employment or its
non-use in the business trade or profession shall be permitted only when such property is located in the
Philippines.
This just means that when it comes to nonresident alien individuals engaged in trade and business and resident
foreign corporations, they are allowed to claim depreciation expense as part of their allowable deductions but only
pertaining to properties situated here in the Philippines. That only make sense because theay are only taxable of
their income derived within the Philippines.

2. Sushmita Shane Castro 11:01-22:00

WHAT ARE THE PROPERTIES NOT SUBJECT TO DEPRECIATION? Non-depreciable assets. (From 2016 TSN)
1. Land
 2. Inventories or stock in trade
3. Personal effects of properties. For example, your own personal car. You are not allowed to deduct the
accumulated depreciation from your taxable or gross income because it is not being used in trade and
business.
4. Funeral policies, which through the process of removal, it is already subjected to depletion
5. Residential buildings
6. Furniture and furnishings

DEPRECIATION VS. DEPLETION

Related to the depreciation expense is the depletion expense. What is the difference between these two?
Depreciation expense Depletion expense
It involves a depreciable asset. This is exhaustion of natural resources.

E.g. a car or building and alter on its value will E.g. gas, mines, oils, wells as a result of production or
depreciate because of ordinary wear and tear. severance from such mines or wells.

You extract the mines and later on because of too

much extraction, maubos mo na yung mine doon,
wala ka nang magamit that is called depletion.

Depletion refers to extraction of minerals including

oils and gas wells.
Pertains to the wear and tear of properties Removal of valuable natural resources

*Kwento about the Star Craft game*

How does depletion work? Usually, they do it through costing from the exploration scheme. During the time they
will explore for natural resources they will incur expenses.
E.g. naghanap sila ng gold and then pag explore nila, okay ang exploration dito na area. So mag start na sila
extract ng gold. And so the exploration expenses shall be treated as an asset.
Habang nag extract ka ng gold, the cost of exploration that will be the one subject to depletion. Hanggang sa
maubos na siya.

CHARITABLE AND OTHER CONTRIBUTIONS

If you take this in the Civil law term, this is similar to donations.

The business enterprise or the taxpayer engaged in trade, business, or profession donates something either to the
government or accredited institutions.

These donations can be allowed as allowable deductions. Our rule in allowable deductions: the expense must be
related to the trade or business of the taxpayer.

But if you donate something to our government (athlete story who died and the Congress ranting about the
facilities for athletes), this is not business related to begin with. So this is one of the exemptions under the law
wherein the taxpayer will spend on something and this is totally outside of business. But because of that provision
in the NIRC, the law allows it to be deducted from the gross income of the taxpayer.

2 TYPES OF CHARITABLE CONTRIBUTION:

1. Those which are subject to limitations- total or actual amount of donations will be compared to the limit
provided by law. And the maximum amount that the taxpayer may deduct is just the limit. For example ang
 limit mo is 100K lang and yet your donation is 200K for those athletes. So only the maximum amount, the
100K, is allowable to be deducted from your gross income.

How do you value your donation/charitable contribution? The amount of any charitable contribution of the
property shall be based on the acquisition cost of the said property. Kung bibigyan ng pera, just the value of
the money. But if you give property, its the acquisition cost of that property.

For instance, you want to donate a parcel of land so it will be built to a sports complex here in Davao City. The
value to be deducted is not actually the zonal value or fair market value of the land donated for that purpose
but it is the acquisition cost. Kung bili ko siya ng 1M dati but now it’s worth is 15M, you are only allowed up to
1M. That is how you value the property for purposes of determining the amount of the charitable
contribution.

2. Those which are deductible in full

WHAT ARE THOSE CHARITABLE CONTRIBUTIONS SUBJECT TO LIMITATIONS? Section 34 (1) (H)
H) Charitable and Other Contributions. - (1) In General. - Contributions or gifts actually paid or made within the
taxable year to, or for the use of the Government of the Philippines or any of its agencies or any political
subdivision thereof exclusively for public purposes, or to accredited domestic corporation or associations
organized and operated exclusively for religious, charitable, scientific, youth and sports development,
cultural or educational purposes or for the rehabilitation of veterans, or to social welfare institutions, or to
non-government organizations, in accordance with rules and regulations promulgated by the Secretary of
finance, upon recommendation of the Commissioner, no part of the net income of which inures to the
benefit of any private stockholder or individual in an amount not in excess of ten percent (10%) in the case of
an individual, and five percent (5%) in the case of a corporation, of the taxpayer's taxable income derived
from trade, business or profession as computed without the benefit of this and the following subparagraphs.
WHAT ARE THE REQUIREMENTS OF DEDUCTIBILITY?
1. It is actually paid or made to any or those specified institutions in the Tax Code
- There are specific institutions listed there. All of them.